How to solve the below problem? Please help
An investor will receive an annuity of $5,000 a year for seven years. The first payment is to be received 5 years from today. If the annual interest rate is 11.5%, what is the present value of the annuity?
Is the answer C) 15,000?
You have to set up a timeline with your calculator set to BGN mode since its asking for today rather than end of year. Year 12 discounted to year 5 should give a PV of 25,851.5. Then discount that number back 5 years to get 15,000.
You can use either BGN or END. For BGN, you would discount the PV by 5 years to get the number as of today; for END, you would discount the PV by 4 years to get the value as of today.
Fastest way: use the CF worksheet! You don’t have to worry about BGN vs. END.
Yes, answer is 15000. Thanks a lot